Harry Cahill and Newell Normand, chairman of West Jefferson Medical Center and East Jefferson General Hospital, respectively, confer with one another on Sept. 9, 2013 after the boards of the two hospitals failed to agree on a lessee (Ben Myers, NOLA.com | The Times-Picayune).
(NOLA.com | The Times-Picayune)

Four years after Jefferson Parish began endeavoring to merge
its public hospitals, philosophical differences between their governing boards
are driving a seemingly irreconcilable split over which private company should lease the hospitals. The
contours of the divide between East Jefferson General Hospital and West Jefferson Medical Center became clear over the past week in interviews with the
hospital chairmen and executives of the two companies that each prefers.

West Jefferson aligns with the local non-profit Louisiana
Children's Medical Center, which runs Children's Hospital, Touro Infirmary and
LSU Interim Hospital in New Orleans and has a state contract to run University
Medical Center, which is under construction in Mid-City. East Jefferson wants
to go with the for-profit Hospital Corp. of America, one of the largest chains
in the United States and operator of Lakeview Regional Medical Center near
Covington, Tulane Medical Center in New Orleans and Lakeside Hospital in
Metairie.

The Parish Council has the final say over which company, or
companies, will lease the hospitals for the next 30 years. It, too, is divided,
although council Chairman Chris Roberts has said he wants the council to make a
decision in the coming weeks.

The Jefferson hospital boards draw on conflicting sets of
values as they seek stability in an uncertain era for health care. West
Jefferson prefers a homegrown organization with a trustworthiness that is validated
by its non-profit status. Headquarters location and tax status are secondary
concerns to East Jefferson, which is primarily focused on the cash that
Jefferson will collect and the financial stability of the company that wins the
lease.

West Jefferson views the state's partnership with Children's
on the $1.2 billion University Medical Center as a safeguard for the system's
future. The thinking there is that Louisiana's government has so much invested
in the deal that it would never let Children's falter, much less fail, and thus
Jefferson's two hospitals would be in good hands in the long term.

East Jefferson views such reliance on state government as a
liability, and Children's as an outfit with little experience in running
acute-care general hospitals, much less a
track record of rapid expansion and growth. Instead, East Jefferson officials
tout HCA's "multilevel economies of scale, going up the corporate chain," as East
Jefferson Chairman Newell Normand put it.

East Jefferson General Hospital, left, and West Jefferson Medical Center, rightThe Times-Picayune archive

Normand is exasperated with what he sees as West Jefferson's
subjective bias in favor of nonprofits, all the more unjustifiable in his view
because HCA is offering $538 million as an upfront lease payment, and would pay
taxes on its capital investments in Jefferson's hospitals. compared to a $406 million lease and no tax
revenue from Children's.

"Give us the data necessary to overcome the financial delta.Articulate
to us the characteristics you're banking about Children's that compels you to
bypass this delta," Normand said in describing requests to West Jefferson board
members. "We don't get responses. We get not-for-profit versus for-profit."

The standard argument in favor of non-profit is that it
plows its excess revenue back into improving the organization, instead of
paying some of it out to stock holders. Children's President and Chief Operating Officer Greg
Feirn stressed the point in an interview Friday.

West Jefferson Chairman Harry "Chip" Cahill bases his
preference for Children's on an unquantifiable wariness toward mixing
shareholders with health care. "I don't
know what their motives are, or what their plans for the future are," Cahill
said of HCA. "I know what the plans for the future for Children's is."

Normand, on the other hand, said "huge systems" such as HCA are
the way of the future in the Affordable Care Act era, and that West Jefferson
is arguing for "the status quo." He likens selecting Children's with "going to
Harrah's to place a bet on the table," and his reasoning is fiscal in nature. Debt
from the Touro and University Medical Center transactions is eating at the $1
billion that Children's holds in cash and investments, and Children's plans to
borrow more to finance $406 million in upfront lease payments for the Jefferson
hospitals, Normand said, citing financials that Children's provided in its
proposal.

"They are burdened with that ratio, and they are very, very
nervous," Normand said. "Now that you are starting to grow a system, you have
to know how to manage debt, how to do it appropriately. And you have to have a
comfort level in doing so."

Cahill, however, said non-profit hospitals are not going the
way of the medicinal leeches. The American Hospital Association reports that only
1,025 of 4,973 community hospitals are for-profits, and Cahill said he thinks
the ratio is "carved in stone.

The two boards' preferred lessees seem to align with their
values, and Children's and HCA executives deploy selling points accordingly.
HCA Delta Division CEO Mel Lagarde outlined the firm's plans to expand the
Jefferson hospitals' reach through a feeder system of outpatient services. Feirn
noted that, as a nonprofit, Children's can comfortably deliver money-losing
programs such as mobile dental care, free examinations for low-income children,
services for sex-abuse victims and others, without stock holders questioning
the financial loss.

Lagarde and Feirn also rebut their organization's perceived
weaknesses. Feirn said Children's debt-to-cash ratio would hold around 50
percent after the Jefferson transaction. Lagarde said HCA intends to start a
community foundation with a $2 million investment, split evenly among the two
hospital boards.

East Jefferson board members are so adamantly in favor of
HCA that they are calling on Parish Council to let them to part ways with their
West Jefferson counterparts, with each hospital seeking its own lessee. Cahill
opposes this because he thinks the New Orleans-area market can support only one
major hospital network, after Ochsner Health System.

Lagarde said HCA would consider leasing only one of the
hospitals but would not discuss details. Feirn, while not ruling out a
single-hospital deal, said leasing West
Jefferson to Children's and East Jefferson to HCA would put Jefferson's public
hospitals in competition with one another.

The way forward in the unwieldy lease process is anything
but clear. The immediate argument among Parish Council members centers not on which
company to pick, but on whether, and in what manner, they should receive a
recommendation from the hospital boards' $1.3 million consultant, Kaufman, Hall
& Associates, Inc. Inspector General David McClintock's report on the
process is due to be released to the public within the next two weeks, and some
council members have said they prefer to wait until then to vote.

Still, Roberts, the council chairman, says he has the four votes
necessary to proceed with Children's, a preference he shares with
Councilman-at-Large Elton Lagasse. Councilmen Ricky Templet and Mark Spears Jr.
have not publicly stated their choice but are thought to be backing Children's.
Council members Paul Johnston, Cynthia Lee-Sheng and Ben Zahn have clashed with
Roberts over Kaufman Hall's role.